Prop 33: The Next Rent Control Proposition

This is the latest attempt by Michael Weinstein and the AIDS Health Care Foundation to ‘take on’ the housing industry and remove rents from “market” conditions. Proposition 33 will be the third attempt at the same thing: Rent Control.

Who is Michael Weinstein? He is an activist from Los Angeles who unsuccessfully ran for Los Angeles City Council and uses his personal fortune to advance initiatives important to him, ranging from housing rent to caps on prescription drugs, and an initiative targeted toward the adult film industry.

What does Proposition 33 do?

It removes the all-important “Costa-Hawkins Rental Act” which effectively put an end to the old Santa Monica Rent Control. Without Costa-Hawkins, when a tenant moved out in Santa Monica, the new tenant paid effectively the same rent with some adjustments mandated by the City of Santa Monica.

I operated buildings in Santa Monica back “in the day,” and it was a “whole different beast.” Tenants would stay for decades and even after some passed away, their families would hide the death and move in new family members. Many tenants had rents as low as $200 per month and had not lived in the unit for years, but rather illegally subleased the unit for hundreds of dollars more than what they we’re already illegally paying. When a unit did come up for rent, literally hundreds of people would line up for hours to lease it sight unseen because the rent was so much lower than the market rent in surrounding cities.

The passage of Proposition 33 would mean when a tenant moves out, you cannot raise the asking rent for the new tenant. Yes, this would finally effectively eliminate the overused broker term ‘added value’ or the justification for purchasing a rental at a very low CAP rate.

Are rents too high? Well, let’s look at the issue from both perspectives:

Landlords: Rents are controlled by market forces.  It would be simple to leave it at that, but personally the issue in our society is ‘affordability’ and not just simply ‘rents.’ Market forces are squeezing lower income residents because wages are simply not keeping up with the cost of living, from housing to groceries, gas, etc. I have been urging our industry for years to address affordability and work with government agencies and tenant right’s group to determine how our industry can provide quality housing for those in society most vulnerable or else it would be ‘forced’ upon us. And it has...AB1482 has placed statewide rent control on most of our multifamily housing statewide, with other more restrictive rent control in cities like Los Angeles, Inglewood, West Hollywood, etc.

Terrible for landlords? Yes, of course.

Our industry would be 100% regulated. Increased utilities, interest rates on mortgages, higher insurance, and so on would not be able to be passed back in the form of rent increases and higher market rent on vacated units.

Tenants: There is no denying that rents are high, and we all see many of our tenants having to move to more affordable neighborhoods when we raise the rents per AB1482. The problem for tenants is market forces are not dictating landlords to freeze rents because occupancy rates in B & C class buildings remain at historically high levels (yes, A class buildings are struggling...). Tenants are being put into a tight spot just like landlords with higher utilities, higher interest rates, etc.

Terrible for tenants? ALSO, YES!!!

What rent control advocates fail to realize is that rent control HURTS the people it tries to protect. First, under AB1482, we raise rent rates every single year to the maximum 5% plus CPI with no regard for market. With the loss of Costa Hawkins, every time we get a vacant ‘cheap’ rent unit, we will get floods of applicants and of course we will lease to the people with highest income, highest FICO scores, fewest number of people living in the unit (people who don’t need affordable housing but want cheap rent)!

There are better ways to balance affordability and each time rent control ordinances pass, the people with the lowest income and need for protection get hurt the most. Unfortunately, Proposition 33 would make the situation much worse.